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Written by: Sheryne Mecklai, CPA, CA
Canada is one of the most charitable countries in the world. Even better, our government supports us in our charitable giving. The government allows for significant tax credits – especially if the charitable gift is made in a Will.
In order for a donation to qualify for the donation tax credit (DTC):
During a person’s lifetime, the DTC claimed is limited to donations made up to 75% of the individual’s income for the the year. Gifts made in excess of the 75% limitation can be carried forward for up to five years.
For donations made during the year the individual passes away (including donations made in a Will), the limitation noted above increases from 75% to 100% of the individual’s income for the year.. Any unused donations can be carried back to the prior year and the donation limit increases from 75% to 100% for that year.
Before 2016, donations made in a Will were considered to be made by the deceased individual during the year that individual passed away. The DTC provided was based on the value of the donated property at the time of the individual’s death. In addition, donations that could not be utilized in the deceased’s final return or in the preceding year return were lost.
The new rules have made it easier to claim the DTC if the donation is made by a Graduated Rate Estate (GRE). If a donation is made as a consequence of death, either by an individual’s Will, by the estate or by a designation of the deceased’s RRSP, RRIF, TFSA or life insurance policy and the individual’s estate is a GRE, there is significant flexibility with respect to claiming the donation and the use of the DTC.
If the donation was made by the GRE within 36 months of death, the donation can be claimed on:
If the donation was made after 36 months, but within 60 months of death and is made by an estate that meets all requirements of a GRE other than the 36-month deadline, the donation can be claimed on the returning preceding the terminal return, on the terminal return or in the year the donation is made.
Any unused donations can be carried forward by the estate for five years.
The executor can review the tax returns for each taxation year of the deceased and the estate. Then they can determine the “best” use of the donation credit.
The value of the property on which the donation credit is calculated is now equal to the value of the property at the time the donation is made – as opposed to the value of the property at the time of the individual’s death.
With all this flexibility there are some issues such as:
Overall, the estate planning community has welcomed these changes. However, to ensure that your charitable gift is made in a tax-beneficial manner, you should make sure your Will considers these new rules. We recommend you review your estate plan and Will – and seek professional advice to ensure that your charitable gifting is tax-efficient.
Sheryne Mecklai is a Partner with Manning Elliott LLP. Sheryne focuses mainly on estate planning and business succession services for Canadian owner-managed businesses in a wide range of industries. She has extensive experience working on engagements such as complex estate plans, and Canadian corporate, trust and personal tax compliance. Sheryne can be reached at (604) 895-8582 or email@example.com.
The above content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent changes. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.